CHAPTER 8

1. Explain fully receivable financing.

Receivable Financing financial transaction or agreement wherein a company
transforms, sells or collateralized its accounts receivable to a third party to obtain cash
quickly rather than waiting for customers to pay and reduce the risk of bad debts as it
can transfer the credit risk associated with the receivables to the third party.
2. Enumerate the four common forms of receivable financing.
The four common forms of receivable financing are:
a. Pledge of Accounts receivable
b. Assignment of accounts receivable
c. Factoring accounts receivable
d. Discounting of notes receivable

3. What are the forms of financing related to accounts receivable?

The following are the three forms of financing related to accounts receivable:
a. Pledge of Accounts receivable
b. Assignment of accounts receivable
c. Factoring accounts receivable

4. What is the Pledge of Accounts Receivable?

A pledge of accounts receivable is a form of financing wherein an entity pledges all
accounts receivable as security for a loan. The entity keeps ownership of the accounts
receivable in this form of arrangement but grants the lender a security interest in them.
5. What is the assignment of Accounts receivable?
An assignment of accounts receivable is a form of financing wherein an entity borrower
(assignor) transfers or assigned rights to collect payment on its outstanding specific
accounts receivable to a lender (assignee) in exchange for a loan. The assignment
may be done either on a non-notification or notification basis.
6. Distinguish pledge and assignment of Accounts receivable.
In a pledge of accounts receivable, the borrower retains ownership of the receivables
and pledges them as collateral for a loan. In contrast, in an assignment of accounts
receivable, the borrower transfers ownership of the receivables to the lender in
exchange for loan consideration. In pledging all accounts receivable serve as collateral
while in assignment only specific accounts receivable as collateral security for a loan.
7. What is the meaning of non-notification and notification basis with respect
to the assignment of Accounts receivable?
On a Non-notification basis, the customers are not notified about the assignment of their
accounts, the assignor continues to collect payments from customers and then remits
the collection to the assignee. On a notification basis, the customers are notified about
the assignment of their accounts, the customers are instructed to make their payments
directly to the assignee.
8. What is factoring?
Factoring is a form of financing wherein an entity sells its accounts receivable without
recourse and on a notification basis to a bank or financial entity called a factor. The
entity literally transfers ownership of accounts receivable to the factor, so the factor
assumes the responsibility for uncollectible factored accounts.
9. Explain casual factoring and factoring as a continuing agreement.
Casual factoring is the sale of accounts receivable at a discount to a bank or financial
institution to obtain immediate cash. While factoring as a continuing agreement is an
agreement wherein a financing entity buys all entity's accounts receivable. In this form,
to verify that the customer has good credit and is likely to pay the invoice before the
product is shipped to the customer, the client obtains the factor's credit approval.
10. What is a credit card?
A credit card is a plastic payment card that allows the cardholder to borrow funds from a
financial institution, such as a bank, to make purchases up to a certain credit limit.